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Transaction Capital in R500m growth plans

Economy

Johannesburg - Financial services group Transaction Capital reported yesterday that it would spend R500 million on acquisitions as its strategy gained momentum.

Transaction Capital operates two divisions: SA Taxi and Transaction Capital Risk Services (TCRS). SA Taxi grew headline earnings by 20 percent to R249m, while TCRS grew headline earnings by 25 percent to R168m during the period.

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Consolidate

SA Taxi is joining up with Zebra Cabs as it intends to consolidate, recapitalise and formalise the existing metered taxi industry, estimated at 17 000 to 20 000 vehicles nationally, including about 4 000 vehicles on the Uber platform.

Read also: Transaction Capital set on growing SA Taxi

Efficient Group’s chief economist, Dawie Roodt, said joining the Uber platform was gaining popularity and business must be able to compete in that space.

“It is the nature of the modern world... People use different applications to conduct business and so are the consumers,” he said.

Roodt said Zebra Cabs would need to be visible in the other provinces such as KwaZulu-Natal (KZN) to make an impact. “The fact that there is a lot of choice for public transport will benefit the consumers but it is a pity that within the industry some people will lose jobs because of the competition.”

Zebra Cabs provides customised luxury vehicles, a technology platform (including a booking app and multiple payment channels) and a niched combined sales channel (incorporating booking apps, web based sales, corporate sales and centralised call centre and dispatch) that the industry does not currently have access to.

Zebra Cabs started operations in Gauteng, and in time will expand its footprint into the Western Cape and KZN. Zebra Cabs operates 260 metered taxis and aims to have 3 000 by 2020.

Following SA Taxi’s vertically integrated business model, Zebra Cabs procures its vehicles via SA Taxi’s established procurement channels and then retails these vehicles via its retail dealership in Midrand.

Zebra Cabs provides the finance, insurance, telematics data, vehicle servicing capability, multiple booking systems and payments channels to support the metered taxi operator.

In February SA Taxi established a retail dealership in Midrand exclusively selling taxi vehicles and is piloting a second dealership in KZN selling pre-owned vehicles, with a further dealership in Polokwane under consideration, the group said..

The firm said due to growing concerns of a potential downgrade of South Africa’s credit rating, SA Taxi raised more than R3.5 billion of debt during the 2016 financial year to meet most of its annual debt requirements for 2017, which resulted in excess cash on hand.

Meanwhile, Transaction Capital’s other unit, TCRS, earlier this month announced its entrance into the Australian market by acquiring 100 percent of Recoveries Corporation Group for A$43 million (R449m).

Transaction Capital would pay A$33m for Recoveries Corporation, expected to be by February and a further A$10m payable over an earn-out period ending on June 2018.

Expand

Earn-out is a provision written into some financial transactions whereby the seller of a business receives additional payments based on the future performance of the business sold.

This transaction provides Transaction Capital with a strong entry point into the Australian market and the opportunity to expand geographically.

Yesterday the group delivered its annual results to September where it reported an increase of 14 percent in profits to R463m, up from R405m reported last year.

The chief executive, David Hurwitz, said although each of these acquisitions were justified on a standalone basis, Transaction Capital was excited about the growth prospects from these acquisitions.

“All of the businesses acquired have scalable business models and proven track records whose competitiveness and value can be enhanced by Transaction Capital through active management, sharing of skills, enhancing technology and effective monetising of Transaction Capital’s proprietary data,” said Hurwitz.

Transaction Capital declared a final gross cash dividend of 18c per share increasing the total dividend per share for the year by 36 percent to 30c per share.

The group’s shares rallied more than 42 percent during the year and it was up by 3.14 percent on the JSE yesterday to close at R14.80.

BUSINESS REPORT

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